More On Legal & Compliancefrom The Advisor's Professional Library
- The Need for Thorough and Effective Policies and Procedures Whethere an advisor is SEC or state-registered, RIAs must revise their policies and procedures to address significant compliance problems occurring during the year, changes in business arrangements, and regulatory developments.
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
The Securities and Exchange Commission on Monday asked a federal court in Washington to order the Securities Investor Protection Corp. (SIPC) to initiate a liquidation proceeding for investors who were victims of the Ponzi scheme carried out by Allen Stanford.
“Because SIPC has declined to take steps to initiate the proceeding for the protection of Stanford customers, the Commission filed suit today asking a court to compel it to do so,” the SEC said in a statement.
SIPC maintains the circumstances specific to the Stanford case mean "that the law doesn’t provide for payouts to investors." The SEC’s staff initially agreed, but on June 15, the SEC informed SIPC that the “Stanford matter was appropriate for a proceeding under the Securities Investor Protection Act,” or SIPA.
The liquidation proceeding would provide customers of the Stanford brokerage firm a chance to file claims seeking coverage under SIPA.
However, Orlan Johnson, chairman of SIPC said in a statement on Tuesday that SIPC will defend itself against the SEC's lawsuit. “We have great sympathy for the victims of this extraordinary Ponzi scheme that inflicted heartbreaking losses on thousands of people across the world,” Johnson said. “But, SIPC must adhere to the requirements established by Congress. After careful and exacting analysis, we believe the SEC’s theory in this case conflicts with the Securities Investor Protection Act, the law that created SIPC and has guided it for the last 40 years.”
Allen Stanford allegedly defrauded investors of more than $7.2 billion by selling them certificates of deposit. Contrary to Stanford’s assurances about the safety and profitability of the investments, he allegedly stole billions of dollars of investor funds and “invested” other funds in speculative personal businesses.
In 2009, the SEC filed suit against Allen Stanford, his companies, and other defendants. Stanford is in custody awaiting a criminal trial based on charges brought by the Justice Department.
On June 15, 2011, the Commission determined that certain Stanford victims who invested in that scheme through the Stanford brokerage firm were “customers” entitled to the protection of SIPA. After providing SIPC its analysis, the Commission directed SIPC to take steps to initiate the liquidation proceeding under SIPA.